What Happens to Your Mortgage When You Sell?

by Ryan Rose

You still owe money on your house. Now you're selling it. What happens to that loan? Does it transfer? Do you pay it off? How does this work?

Let me clear this up.

The Simple Answer

Your mortgage gets paid off at closing from the sale proceeds. The buyer's money pays your lender. Whatever's left goes to you.

You don't transfer your mortgage to the buyer. You don't keep paying after you sell. The loan ends. Done.

How Payoff Works

Before closing, the title company contacts your lender for a payoff statement. This shows exactly how much you owe, including:

Principal balance. What you still owe on the loan.

Accrued interest. Interest accumulated since your last payment.

Any fees. Recording fees, wire fees, or other payoff costs.

The payoff amount is usually slightly higher than your normal balance because of that accrued interest. It's calculated for the specific closing date.

At Closing

Here's what happens with the money:

The buyer (or their lender) sends funds to the title company. The title company pays your mortgage lender the payoff amount. They also pay other costs like commissions, title insurance, and fees. Whatever remains is your equity, your profit.

You'll see all this on your settlement statement.

What If You Owe More Than You're Selling For?

If your mortgage balance exceeds the sale price, you're underwater. The sale proceeds won't cover your loan.

Options in this situation:

Bring cash. Pay the difference out of pocket to close.

Short sale. With lender approval, sell for less than owed. The lender takes a loss. This affects your credit.

Wait. Stay in the home until you've built more equity through payments or appreciation.

Multiple Mortgages

Have a second mortgage or HELOC? Those get paid off too. First mortgage gets paid first, then second. If there's not enough to cover both, you need to negotiate with lenders or bring cash.

What About Your Escrow Account?

If your mortgage has an escrow account for taxes and insurance, you'll get that money back after closing. Your lender refunds the escrow balance, usually within 30 days.

It's not a lot, but it's your money. Expect a check in the mail.

Keep Making Payments

Until closing actually happens, keep making your mortgage payments. Don't stop just because you have a buyer. If the deal falls through, you don't want to be behind.

Once closing is complete and recorded, you're done. No more payments on that loan.

The Bottom Line

Selling with a mortgage is straightforward. The loan gets paid off from sale proceeds at closing. You keep the equity. The process handles itself through the title company.

Questions about how your mortgage payoff will work? Let's walk through your numbers.

Frequently Asked Questions About Mortgage Payoff When Selling Your Home

Q1: Do I need to pay off my mortgage before I can sell my house?

No, you don't need to pay off your mortgage before selling. The mortgage is paid off automatically at closing using the buyer's funds. The title company handles the entire payoff process, deducting the amount owed from your sale proceeds.

Q2: Can the buyer take over my existing mortgage?

In most cases, no. Your mortgage gets paid off at closing and doesn't transfer to the buyer. The buyer will obtain their own financing. Some older loans have assumable features, but this is rare and requires lender approval.

Q3: When exactly does my mortgage get paid off?

Your mortgage is paid off on the closing date when the sale is finalized and recorded. The title company sends the payoff amount directly to your lender from the buyer's funds. You stop being responsible for payments once the transaction is recorded.

Q4: What is a mortgage payoff statement and who requests it?

A payoff statement is a document from your lender showing the exact amount needed to pay off your loan, including principal, accrued interest, and any fees. The title company requests this statement before closing to ensure they have the correct payoff amount for the closing date.

Q5: What happens if I sell my house for less than what I owe on the mortgage?

If you're underwater on your mortgage, you have three options: bring cash to closing to cover the difference, pursue a short sale with lender approval (which impacts your credit), or wait to sell until you've built more equity through payments or market appreciation.

Q6: Do I still need to make mortgage payments while my house is for sale?

Yes, continue making all mortgage payments until closing is complete. Don't stop payments just because you have a buyer under contract. If the deal falls through, you don't want to be behind on payments or risk damage to your credit.

Q7: What happens to my escrow account when I sell?

If you have an escrow account for property taxes and insurance, your lender will refund the remaining balance to you after closing. This refund typically arrives within 20-30 days of the sale closing and is sent as a separate check.

Q8: How is the mortgage payoff amount calculated?

The payoff amount includes your remaining principal balance, interest accrued from your last payment through the closing date, and any lender fees such as recording or wire transfer fees. This is why the payoff amount is usually slightly higher than your current loan balance.

Q9: What if I have a second mortgage or home equity line of credit (HELOC)?

All mortgages and liens on the property must be paid off at closing. The first mortgage is paid first, then the second mortgage or HELOC. If sale proceeds don't cover all loans, you'll need to bring cash to closing or negotiate with your lenders.

Q10: How much money will I receive after my mortgage is paid off?

Your net proceeds equal the sale price minus your mortgage payoff, real estate commissions, closing costs, title insurance, and other fees. The remaining amount is your equity or profit from the sale. Your settlement statement shows this complete breakdown.

Q11: Will paying off my mortgage early result in a prepayment penalty?

Most modern mortgages don't have prepayment penalties, but some loans do. Check your original loan documents or contact your lender to confirm. If there is a penalty, it will be included in your payoff statement and deducted from your proceeds at closing.

Q12: How long does it take for my lender to receive the mortgage payoff?

The title company typically wires the payoff amount to your lender on the closing day or within 24 hours. Your lender then processes the payoff and releases the lien on the property. You should receive confirmation that your loan is satisfied within a few weeks.